Now you have the rest of your life to figure out. If you need a little financial guidance as you start on the road to independence, we’re here to help.

Some of the financial factors new college graduates need to consider include juggling student loan debt, saving for retirement, paying rent, and other potential grabs on your wallet. And college debt isn’t insubstantial—based on the most recent data available, the average student load debt for class of 2016 graduates was $37,172, up six percent from the previous year, according to Student Loan Hero. Compare that to the average projected starting salaries for new college graduates in the class of 2017—just over $51,000, according to the most recent data available from the National Association of Colleges and Employers.

We get that it feels totally overwhelming—and it can be if you don’t have a plan. But it can be done.

One Graduate’s Plan

Colin will graduate from Purdue University in Indiana this May with a computer science degree. He’s lucky that he’s already lined up a job, he says, and one that has a 401k plan. He plans to start contributing when he starts his job.

“I wasn’t expecting that straight out of college. That definitely makes it a lot easier,” he says.

Being a computer science graduate, he could have gone to Silicon Valley for big dollars, but he opted to work in Chicago for less compensation for other financial reasons.

“My starting salary is actually considerably lower than many of my peers mostly because some of them are going over to Silicon Valley where you get paid more than $100,000 straight out of college, but you also have to pay $3,000 a month on housing,” he says.

Even with the robust 2018 job market, new grads can be strained by the startup costs of that first step. That first apartment typically requires a security deposit. Then there’s furniture, a wardrobe upgrade, and perhaps a set of wheels. Plus, according to many financial professionals, it’s a good idea to establish an emergency fund. Many independent-minded grads would rather not tap the Bank of Mom and Dad if they can help it.

Crunching the Numbers: Retirement Plans, College Debt

New college grads have to weigh a number of factors—including what they pay for necessities like housing and nonnecessities like entertainment—as they learn how their choices impact their financial health.

“It’s a balancing act,” says Robert Siuty, senior financial consultant at TD Ameritrade. “It isn’t easy to save much when you’re just starting out. But even saving just a little bit counts. And it could really add up to something substantial in the future through the power of compounding.”

As new grads review their financial picture, he says to look at the interest rate on their student loan debt.

“When you’re starting out, taking advantage of a 401k early on makes a lot of sense, especially if there’s a matching component,” Siuty says.

If your employer matches contributions to your 401k, you could consider making a full contribution up to that match point. This maximizes the free money you can get from the match.

In a typical 401k the money goes in pretax, while in a Roth 401k the taxes are paid up front. If your employer doesn’t match contributions, however, you might want to consider another option.

The other option to consider is a IRA, where any earnings and growth can compound for retirement,” he says.

Roth IRAs are based on the idea that the money may grow in a tax-sheltered account and qualified withdrawals are tax-free. But a traditional IRA can be an effective alternative as well, depending on a person’s situation. With a traditional IRA, the contributions into the IRA account usually reduce taxable income. The idea with the traditional IRA is to get a tax break today and pay taxes on any gains during retirement.

The Power of Compounding

For new college grads in their early 20s, the power of compounding works heavily in their favor, says Siuty. And because of compounding returns, which we hope over time will overpower loses, new grads can potentially rid themselves of the student loan debt over time.

FOR ILLUSTRATIVE PURPOSES ONLY.

There are a few rules many financial professionals will remind us of. Here are a few examples.

Start investing early, and there is no better time after college graduation. Put savings on autopilot by setting up automatic withdrawals to put a little money into a 401k or IRA or both. You’ll be saving without needing to think about it—and you don’t need to make the choice between a latte and your 401k.

“When you’re starting out, you’re matching your lifestyle to your income,” Siuty says. “By setting habits early and earmarking money to your 401k on a regular basis, you can adjust your lifestyle to your net income minus that 401k contribution. Set it and forget it. As your income goes up, you can adjust the contribution to the 401k higher so it rises as your income does.”

College graduation is an exciting time in your life, but it can feel a bit overwhelming, financially if not emotionally. But starting to develop those good habits early, such as putting savings on autopilot and letting the small savings add up, can help put you on the right track toward your goals.

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